The Richest Man in Babylon – Money Lesson 2 – Pay Yourself First

Hello everyone, I hope all of you had a restful weekend and all charged up for the new week ahead.

I now bring you the second money lesson I learned from reading “The Richest Man in Babylon” book.

You need to pay yourself first! This doesn’t mean that you go out shopping and splurge your hard earned money.  Paying yourself first means that every time you get any income, be it from your salary in your job or the income from your business, you need to set aside money for you to re-invest.  How much exactly should you set aside? A minimum of 10% of your income is what is recommended, if you can set aside a bigger percentage then that would be better.  Set aside a minimum of 10% of your income and then budget the remaining money to your monthly expenses, food, clothing, housing, etc.

What do you do with the money you paid to yourself? You make your money work for you by investing it properly.  For me, since I have a bias of investing in the stock market, I would recommend to invest it in the stock market.  If you set aside a large amount of money, then you could divide it into 6 parts, then buy recommended stocks every month for 6 months.  If the amount you set aside isn’t that big then you can buy a recommended stock and do it every month, always from the money you paid yourself.

Sample income distribution

So, if your money invested in the stock market appreciates or earns dividends, can you now use that money to shop? To buy the latest and greatest phone? Well, sorry, not yet.  You re-invest the earnings of your stock market investments by again purchasing recommended stocks.  And the cycle goes on and on, multiplying and multiplying your money.

This is the concept of making your money work hard for you instead of you working hard for your money.  This is where you start earning passive income.

It is not important that you currently have a lot of money in your wallet, what matters is that you have a steady flow of money to fill your wallet.

So start practicing this today, start with setting aside 10% of whatever income you get then if you can afford it, increase the percentage of what you set aside.  You’ll be surprised that you actually won’t feel that 10% you invested, you will be able to adjust your budget to the remaining money and still live comfortably at the same time you’ll feel good that you are making your money work for you and for your future.

Start now! Invest in your future, retire a millionaire!

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